Simple Is the New Black in Participant Engagement

“The days of jargon and complex charts and graphics, are
gone, over, finished,” according to Laurie Rowley, president of National
Association of Retirement Plan Participants (NARPP).

“It is hard to imagine anyone becoming inspired by a bar
chart,” she tells PLANADVISER. “Having said that, the retirement industry in
general is very change resistant, and this has had a negative impact on both
sponsors and participants.”

Rowley contends that plan sponsors and participants alike
report dissatisfaction with the way the industry educates and communicates—and
this dissatisfaction has been going on for years. “Part of the problem with
engagement centers on the undeniable fact that the materials people are
interacting with are complicated, confusing and disempowering,” she says.

The industry does have a history of presenting information
to participants in a complex way, admits Edmund F. Murphy III, president of
Empower Retirement, which has contributed to some lack of engagement. “Until
recently, deferral rates were relatively flat,” Murphy says, noting that in
2010, Putnam took on the issue head on.

Addressing issues in retirement savings is complex, Rowley
says, and can no longer rest in the hands of service providers alone. “Change
requires collaboration, innovation, and action,” she says. “If communications
materials are not engaging people, you have to throw out the old model and come
up with something new.”

In fact, Rowley says, the industry is starting to change.
Daily she takes calls from plan sponsors looking to implement change in their communications.
“I believe that service providers who want to play a cultural role as well as a
retail role will distinguish themselves as leaders in financial services,” she
says. “Helping people save for retirement is a societal issue, not a zero sum game.”

Murphy agrees, noting that some in the industry “are
innovating and looking to simplify in ways that engages and gets participants
to change behavior.”

Plan
sponsors have unanimously embraced a more intuitive, simplified approach,
according to Rowley. In a new program—Intuitive Sustained Engagement
(ISE)—NARPP uses a new approach to increase participation and savings rates.
The program also outperforms traditional education and communications programs
by successfully engaging consumers in better financial decisionmaking, she says.

According to Warren Cormier, chief behavioral officer of
NARPP, the design of ISE builds deeper engagement by transforming complicated, dense
language into a very clear and concise presentation of relevant information.
“We feel education is an important channel, but the goal is to engage employee
in better financial behaviors in order to get better outcomes,” Cormier says.

Information is streamlined, presented simply and engagingly.
“ISE has the ability to transform the way financial information is presented in
a way that empowers and informs the user,” Rowley says. “I don’t think ISE can
solve all of the problems with engagement, but it is a giant leap forward in
the right direction.” Gone are the gray blocks of dense copy, tiny numbers and
bar charts. Instead, simple statements in plain English give accessible
information about the difference between stocks and bonds, and describe how a target-date
fund (TDF) works.

The program’s primary focus is to create deeper levels of
engagement with retirement savings decisions. Understanding the benefits
of the benefit is one of the ways ISE helps to create engagement, Rowley says.

“We have been blown away by the response from sponsors,”
Rowley says. While the program does use numbers and images to illustrate
values, the program uses them in ways that are simpler and easier for people to
grasp.

Another important aspect is focusing on the benefit the plan
sponsor is providing. “We make the plan sponsor the hero by using language that
reflects the plan sponsor’s brand and business,” Rowley explains. The language
makes very clear that the participant stands to gain financially by engaging in
the company’s retirement plan.

While some pushback has come from service providers, Rowley
emphasizes that the nonprofit organization’s compliance attorneys, who she
calls “some of the best in the country,” have thoroughly reviewed all pieces.
“Some have even suggested that our pieces are more compliant, because they are
more understandable,” she says.

At
the heart of what NARPP does is an approach that folds in information and
techniques from several disciplines—not just behavioral economics but
marketing, consumer decisionmaking and intuitive design. Rowley says the
organization sees NARPP’s role “at the nexus of human-centered design and
behavioral finance.”

Cormier explains that ISE works through several channels.
They drew on research to see how best to make information more relevant and
more accessible. “We wanted to eliminate confusing charts and industry jargon,”
he says. Then, the number of
required decisions in each piece had to be minimized. Participants disengage
when they are shown long lists of decisions, Cormier says.

Plan sponsors and providers that think all participation
problems are solved through auto-enrollment might be in for a bit of a shock.
“Auto-enrollment is a powerful tool in the toolbox, but it is not a full-stop
solution to retirement savings,” Rowley says. According to research, saving
rates are lower with auto-enrollment, she says. “People who join passively may
continue to act in a passive manner with their retirement savings. This is something
are going to be exploring in our 2015 participant study.”

Murphy says that auto-enrollment used by itself, rather than as part of a suite
of automatic plan features, is never going to be as effective as combining it with auto-escalation and with a default selection of target-date fund. Rowley feels that auto enrollment must be supplemented with
appropriate engagement strategies that encourage better saving habits.

One way to boost savings is to show participants what an
increase in their contribution rate will give them in retirement, Murphy says. “We show them what an increase in
contribution would be out of their paycheck, and more importantly we show what
that change means to them when they turn 65,” he explains. “It will cost $125
now, but then it’s worth $800 a month for the rest of their life.” He
attributes the use of this illustration with substantial changes in their
participant engagement: When participants log onto the site, Murphy says, eight
out of 10 end up increasing their deferral rate, with an average increase of
25%.

The industry will likely continue to evolve in its approach
to presenting content to plan participants, Rowley feels. “I believe the
retirement industry needs to take a page from successful brands like Apple and
Nike,” she says. “Less focus on the products, more focus on the user
experience. If your potential customers are not using your products, don’t
blame the customer, change the message.”